Key Points
- The SEC recently approved Bitwise’s 10 Crypto Index Fund conversion to an ETF, but paused it within hours.
- The surprise reversal is similar to other delays, like Grayscale’s multi-asset ETF.
- Analysts say the SEC may be stalling until formal crypto ETF standards are in place.
The SEC initially approved Bitwise’s request to convert its BITW Index Fund into a spot crypto ETF. However, just hours later, the decision was unexpectedly paused.
This decision has cast doubt over the SEC’s stance on crypto ETFs. These mainly involve ETFs with multiple digital assets, with the proposed fund now in regulatory limbo.
A Fast Approval, Then an Even Faster Freeze
The SEC’s Division of “Trading and Markets” approved the Bitwise ETF on July 22. Surprisingly, SEC Assistant Secretary Sherry Haywood issued a separate stay notice on the same day.
The notice cited Rule 431 and paused the approval. Not only this, it also referred the matter to the full Commission for review. In essence, Bitwise cannot proceed with the ETF conversion. At least not yet.
What Is the Bitwise 10 Crypto Index Fund?
Bitwise’s fund, launched in 2017, tracks the top ten cryptocurrencies by market cap. As of June 30, Bitcoin comprised 78.7% and Ethereum 11.1% of its holdings. The remaining portfolio includes Solana, XRP, Cardano, Avalanche, Litecoin, Polkadot, Uniswap, and Bitcoin Cash.
BITW would have become the US’s first multi-asset spot crypto ETF if approved. Investors would have been able to buy into a diversified basket of crypto assets on public exchanges.
The proposed ETF included institutional-grade custodianship with Coinbase Custody for crypto, and Bank of New York Mellon for cash.
In addition, creation and redemption were designed to happen in 10,000-share blocks, with pricing provided by CF Benchmarks. However, this fund is now back to sitting on a desk again, only a few hours after approval.
A Pattern of Pauses in Multi-Asset ETF Applications
This isn’t the first time the SEC has hit pause on a crypto ETF after approving. Grayscale’s Digital Large Cap Fund faced a similar reversal earlier this year. That fund also aimed to convert into a spot ETF with exposure to Bitcoin, Ethereum, and other major altcoins.
Nate Geraci, president of the ETF store NovaDius Wealth, called the Bitwise situation “bizarre”. He also mentioned its similarities to Grayscale’s experience. Bloomberg ETF analyst James Seyffart noted the approval came early, as the official decision wasn’t expected until later.
Why the Sudden Pause?
There’s some rising speculation that the SEC is intentionally slowing down multi-asset ETF approvals. Several analysts, including Bloomberg’s Eric Balchunas, believe the agency may be waiting to release general listing standards for crypto ETFs.
These rules would provide more consistent guidelines, especially for assets beyond Bitcoin and Ethereum. Scott Johnsson, general partner at Van Buren Capital, believes internal politics may be at play.
He speculated that the initial approval came via delegated authority. It’s more of a way to sidestep the agency’s expected resistance from Commissioner Caroline Crenshaw, a Democrat.
ETF Demand Grows Despite Uncertainty
While the regulatory process is still murky, institutional interest in crypto ETFs is rising. According to Bloomberg Intelligence, Ethereum ETFs saw over $533 million in net inflows on July 22 alone. This is the third-largest daily inflow since their inception.
Meanwhile, Bitcoin ETFs experienced smaller outflows, totaling $67 million that same day. Bitwise’s ETF pause came as the SEC reviewed over 70 crypto-related ETF applications. This includes proposals from Grayscale, CoinShares, Franklin Templeton, Invesco Galaxy, and VanEck.
New ETF filings include requests to list tokens like Dogecoin, SUI, MELANIA, and TRUMP. Yet, due to their relatively clearer regulatory status, most institutional capital continues to flow toward Bitcoin and Ethereum ETFs.
What Happens Next?
Bitwise has not yet decided whether to appeal or resubmit the proposal. For its part, the SEC has been mostly silent about the reasons behind the pause. The SEC’s timing suggests it’s being cautious about expanding crypto ETFs beyond single-asset offerings.
It wants to ensure proper oversight before approving more complex products. Multi-asset crypto ETFs might face delays for now. This could happen even if they meet existing regulatory criteria.
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